European Energy Union: Integration of markets and need for in-house energy production

Maroš Šefčovič, Vice-President of the EC in charge of Energy Union, participated in the EP plenary session, in the presence of Jean-Claude Juncker, President of the EC. It was there where he presented his strategy for the EU Energy Union. (EC Audiovisual Services, 27/02/2015)

Maroš Šefčovič, Vice-President of the EC in charge of Energy Union, participated in the EP plenary session, in the presence of Jean-Claude Juncker, President of the EC. It was there where he presented his strategy for the EU Energy Union. (EC Audiovisual Services, 25/02/2015)

The European Commission (EC) official convened in Brussels two days ago to discuss and decide about the crucial matter of the European Energy Union. The strategy of the implementation of this Union was presented and according to Maros Šefčovič, vice-president of the EC, would be “the biggest energy project since the Coal and Steel Community”.

However, even if this sounds very promising, it has been under discussions for over a decade now. It is very difficult, not to say impossible, to coordinate and create such a Union if there is no cooperation from all the EU member states.

The Ukranian crisis has forced the EU to search for alternative solutions regarding energy sources. Is it in the EU’s intentions to cause further economic problems to Russia by not relying to the latter’s energy sources or is it just one of the five priorities that Jean-Claude Juncker set when became president of the EC? The answer lies somewhere in the middle. But the main issue that needs to be addressed here is the reason that the EU rely so much on energy imports and doesn’t increase its primary production.

Energy Union package

The officials of the EC were very delighted and eager to announce the decision of a strategic framework for the Energy Union. The second priority in Juncker’s plan seems that is starting to materialise just now. More specifically, Jean-Claude Juncker, Commission President, had said: “For too long, energy has been exempt from the fundamental freedoms of our Union. Current events show the stakes – as many Europeans fear they may not have the energy needed to heat their homes. This is about Europe acting together, for the long term. I want the energy that underpins our economy to be resilient, reliable, secure and growingly renewable and sustainable.”

What is more, Maroš Šefčovič, Commission’s Vice-President responsible for the Energy Union mentioned that: “this project will integrate our 28 European energy markets into one Energy Union, make Europe less energy dependent and give the predictability that investors so badly need to create jobs and growth.” Thus it is clear that Juncker’s Commission is more than determined to make this Union happen as soon as possible in order to ameliorate Europe’s position in the Energy arena.

Difficulties of Union’s integration

The good will of the EC to create an Energy Union may be though undermined by some national governments which will oppose to such unification. Countries such as Hungary, Slovakia, and the Baltic states which fully depend on Russian supplies are most likely not going to support this project. Viktor Orbán, the Hungarian Prime Minister, has already made his intentions clear that will not let the EC “play” with the country’s energy policy. Russia is surely going to pressure governments to put obstacles in the formation of this Union in order to keep its interests (through the Russian energy giant Gazprom) in the European market. Furthermore, the fact that there are German energy firms which have signed “big” contracts with Gazprom should also be taken into consideration.

Nevertheless, the EC seems determined to fight the lobbies, which may be created by large corporations or countries, in order to bring a more secure and competitive energy which will be distributed within the bloc according to its member states’ needs and to be mainly supplied by Russia.

Increase domestic energy production

Europe, apart from the creation of the Energy Union, should also focus on the increase of the production of its primary energy. This lies on the fact that even if this Union is created we will still have to import, maybe not from Russia but some other non-EU country, substantial quantities of energy (e.g. Azerbaijan etc). The solution to the whole energy issue is a combination of these two pillars: Energy Union and increase of domestic energy production.

Nevertheless, the data that Eurostat, the statistical office of the European Union, has published regarding EU’s total primary energy production for the decade between 2002 and 2012 are not promising, showing a substantial decrease of 15.7%. The main reasons behind this downfall may be attributed to the lack of raw materials and the fact that the production of limited natural resources is unprofitable. Whatever the reason, the point here is that Europe’s production is dropping and thus more imports are needed to cover the energy demands.

Thus, EU-28’s imports are equally experiencing an increase of 7% from 2002 to 2012 but are decreasing from the financial crisis of 2008 and on. The countries with the highest import share (in 2012 terms) are: Germany, Italy, France, Spain and UK. Even if the imports from another non-EU country have dropped by 9% since 2008, Europe depends on them by 53.4% of its total energy consumption.

Hence, the EU is mainly importing primary energy from few specific countries which makes the Old Continent to be highly energy dependent. Russia, Columbia and the United States provide the majority of solid fuels with Russia being the main supplier. Crude oil and natural gas are also mainly supplied by Russia which is followed by Norway.

Consequently, it is clear that the European Union is largely depending on Russia for energy imports which makes its detachment from it or low reliance on it as energy provider quite difficult if such action is required for the creation of the Energy Union. Nevertheless, an Energy Union is highly needed and Juncker’s Commission seems decided to cut red tape and bring all the members states together in this energy reform.

The European Union needs an energy single market yesterday and it is rather positive that the first step has been made at the beginning of 2015.

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